The project to redevelop Sydney’s Ritz-Carlton hotel has become embroiled in another stoush as the owners of the site take legal action against the property executives they installed to run the development.

British property tycoon Kevin McCabe and lieutenant Didier Tandy are suing two former consultants, Nicky Garrett and Sam Renauf, claiming breaches of fiduciary duties and that funds were misappropriated.

The consultants left the Scarborough Pacific Group venture last year.

The pair have strongly denied the claims by the developer.

“We reject all of the allegations and we’ll defend ourselves vigorously in the court," Ms Garrett said on Thursday.

“But we note that a number of these allegations have been made previously and we’ve demonstrated them to be not true."

The legal stoush is the latest hurdle for the project, which has been mired in controversy for years. Most famously, in 2009, thousands of Double Bay residents marched against a plan by failed developer Ashington, which was briefly chaired by entrepreneur Mark Bouris, to redevelop the hotel into two 15-storey towers.

Those plans were dumped as Scarborough took control of the project from Ashington and secured planning approval to build 78 apartments and a 600-seat cinema complex.

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But relations soured after reports emerged in late 2011 of cabaret parties and functions being held at the closed hotel.

“We were trying to get a DA [development application] for a sensitive project so their behaviour was incomprehensible in terms of the unauthorised use of the building for large-scale cash activities of an undesirable nature," Mr Tandy said.

Ms Garrett said the NSW police and the NSW Office of Liquor, Gaming and Racing had completed investigations and found “there was no wrongdoing by Sam or myself".

The consultants parted ways with Scarborough, which is backed by Victorian shopping centre owners the Alter family, last February.

The dispute, which Ms Garrett said arose over a difference in asset strategy, has become acrimonious, with claim and counter-claim about how money was spent.

Mr Tandy claimed that Scarborough had lost more than $1 million and travel expenses are disputed. Ms Garrett denied there had been any breaches of fiduciary duty or misuse of money. “This assertion we’ve taken money from them is just absurd – they owe us money," she said.

Mr McCabe launched a campaign to sell the site or find a partner to back plans for a $230 million development after the pair left. Scarborough has been unsuccessful so far. Mr Tandy conceded that plans would need to be revised again to reflect market conditions.

He said the group was working on a new DA and talks were continuing with offshore-based potential joint venture partners.

A new plan could look at how the upper floors could be used in a “more profitable" manner, accommodating residential units around the existing building, and putting in a cinema complex.

“I think the council would welcome an application in this format," he said.

Scarborough has lodged a statement of claim in the NSW Supreme Court.

A directions hearing is scheduled for February 15.The two consultants have hired law firm Watson Mangioni and will file a defence next month. Arnold Bloch Leibler is representing Scarborough.